What is stacking?
4 min reading
Cryptocurrency and savings account. Interesting discovery!
What is stacking?
If you have an overview of what a savings account is and how it works, you should be able to understand what cryptocurrency stacking is. Stacking is the act of stacking or blocking funds in a cryptocurrency wallet for the sole purpose of helping keep the proof-of-stake blockchain system running. This activity is somewhat similar to crypto mining because it helps the network reach consensus and also rewards the users who participate in it. So you see this is a win-win situation. Before we get into the full stacking process, we need to understand what Proof of Stake (PoS) is.
This is one of the two main ways to achieve consensus on the blockchain. Simply put, this is one of the ways to validate the blockchain. When a transaction is sent to the network, the nodes on the network validate the transaction to ensure that the person has enough tokens or that it will not damage the network. If this has been verified and approved, transactions are added to the blockchain. Proof of Stake originated during the proof of work algorithm, and it is seen as an energy-saving approach to reach consensus. Proof of Stake offers many benefits, to the extent that several major blockchains have switched to Proof of Stake.
What is the stacking process?
It simply means that the nodes put their coins or tokens into the game to take part in the network by creating a block. The network’s reward is proportional to the size of the invested bet. However, some proof of stake allows anyone to take part in the process if a sufficient stake has been invested.
Stacking against savings
Today, when a person wants to make a profit on his investment, he quickly thinks about a savings account, which is offered by most banks and which offers a regular interest rate on his savings. However, depending on your country, these savings accounts cannot exceed 2% of actual savings, and they never exceed inflation rates in most countries. Banks offer this percentage because your savings are used to generate their own income.
For example, they can lend or invest your money. For comparison, with stacking, you can get up to 5% of the invested amount.
To start stacking, you need to have free funds to buy coins and the ability to freeze them on a special deposit smart contract for an extended period of time. For example, for stacking DASH you need 1,000 coins, and for Ethereum 2.0, you will need at least 32 ETH. The minimum number of coins to participate is determined by each cryptocurrency individually. But the more coins you allocate for stacking, the higher your chances of creating a new block in the network. Unlike mining, crypto-stacking does not require large expenditures on equipment (ASICs). Once you have added coins to your wallet on the PoS algorithm, then you need to wait for the blocks to appear, on average it is 1-2 days. The PoS protocol may include different algorithms to select a node to add a block. Each cryptocurrency uses its own methods and rules, which, according to the developers, best support their network. People with different capital can participate in stacking. It is also necessary to pledge some amount of coins for collateral. It is because of these complications that today’s stacking through providers (who perform all technical actions for the user) is so popular and even more so is fixed stacking, for which you just need to keep purchased assets in the wallet of the exchange.
Plus, if we compare the time spent on each investment method, it is clear that stacking is the fastest method. The cryptocurrency process usually takes a few seconds, while sometimes it takes several days to open a savings account with a bank, which of course can still be declined. These comparisons allow us to see that the rate of cryptocurrency is much simpler and more profitable.